Australian Dollar edges lower after US PMIs hold up better than expected

• Australian Dollar moves marginally lower against the US Dollar on Monday after US Manufacturing PMI data surprises to the upside. 
• US Composite PMI is also higher – and in expansionary territory – compared to Aussie correlates.
• Concerns regarding the impact of interest rates on the Australian housing market as well as China’s lackluster growth also weigh on AUD.  

The Australian Dollar (AUD) edges lower against the US Dollar (USD) on Monday, after data from ratings agency S&P Global shows Purchasing Managers in key sectors, especially manufacturing, hold a more optimistic outlook in the US than in Australia. 

The Aussie is also weighed down by concerns regarding the impact of high interest rates on its rate-sensitive house market and China growth woes, whilst better-than-expected Aussie employment data is a counter-balancing positive. 

The AUD/USD pair trades in the 0.67s as the US session gets underway.  

Australian Dollar news and market movers 

• The Australian Dollar edges lower against the US Dollar on Monday after the release of S&P Global PMIs for both nations shows comparatively better results for the US than Australia, supporting the USD more than the AUD. 
• Preliminary S&P Global US Manufacturing PMI data actually came out higher than expected at 49, beating estimates of 46.4 and a previous result of 46.3 in June – though still in contractionary territory (below 50). 
• US S&P Global Composite PMI was also higher at 52, and in expansionary territory compared to Australian Composite PMI, which came out at 48.3 for the same period. 
• The Australian Dollar is expected to face headwinds as inflation is predicted to fall, reducing pressure on the Reserve Bank of Australia (RBA) to raise interest rates to bring inflation under control. 
• Since lower interest rates attract less foreign capital inflows they tend to have a negative impact on currencies. 
• Quarterly inflation figures for Australia are out on Wednesday, July 26, and likely to provide invaluable intelligence for Australian Dollar traders attempting to model the future course of interest rates in Australia. 
• The Consumer Price Index (CPI) for Australia in the second quarter is estimated to show a 6.2% rise YoY compared to the 7.0% in Q1. On a QoQ basis, it is forecast to show a 1.0% rise versus the 1.4% increase in Q1. 
• The RBA’s preferred gauge of inflation, the RBA Trimmed Mean CPI, measured quarterly, is out on Wednesday, July 26, at 01:30 GMT. The data is forecast to show a 6.0% rise in Q2 YoY versus the 6.6% of Q1.QoQ it is estimated to show a 1.1% rise, which is below the 1.2% rise in Q1. CPI could be a key driver for the Aussie in the short term. If CPI is lower than expected, it will weigh on AUD and if higher, it will support AUD. 
• Strong Australian labor market data may influence the inflation figures resulting in higher-than-anticipated results. If that is the case, then the AUD may gain after the release of the CPI data. 
• The Aussie has weakened on skepticism over China, its largest trading partner’s growth, after the country’s lackluster Q2 GDP readings. 
• The Federal Reserve’s (Fed) interest rate decision at 18:00 GMT on Wednesday could also impact the AUD/USD pair by way of influencing the US Dollar. 
• The Fed is already expected to raise interest rates by 0.25%, however, the wording of its accompanying statement may impact the US Dollar. 
• A more hawkish commentary will come as a surprise as the market is not pricing in further rate hikes from the Fed. As such it would strengthen the US Dollar and weigh on the AUD/USD pair. 
• The opposite is true if the Fed indicates it may have reached peak rate or even talks about possibly bringing rates down in 2024. 
• There exists a high risk that the RBA will have to cut rates from their current 4.1% level in 2024 because the Australian house market is dominated by variable-rate mortgages so it is more sensitive to changes in interest rates, and homeowners have recently been adversely affected by higher mortgage interest repayments, according to Bloomberg Intelligence, as quoted by Financial Review. 
• In comparison, the RBA’s Cash Rate is 4.1%, which is below the Fed’s 5.25% (likely to be 5.50% after Wednesday), thus overall favoring capital flows to the Greenback versus the Aussie.   

Australian Dollar Technical Analysis: Underpinned by confluence of support 

AUD/USD is in a sideways trend on both the long and medium-term charts. The February 2023 high at 0.7158 is a key hurdle on the weekly chart, which if vaulted, will alter the outlook to one that is more bullishly biased. 

Likewise, the 0.6458 low established in June is a key level for bears, which if breached decisively, would give the chart a more bearish overtone. 

Australian Dollar vs US Dollar: Weekly Chart

A confluence of support made up of all the major daily simple moving averages (50, 100 and 200) exists in the upper 0.66s and early 0.67s. This is expected to provide a rigid cordon of support that will make it difficult for bears to push the exchange rate much lower from its level at the time of writing.  

Australian Dollar vs US Dollar: Daily Chart

Only a decisive break below the 50 and 100-day Simple Moving Averages (SMA) would confirm a continuation of the recent bear move lower to a speculative target at the June and July lows in the mid-0.64s. 

A decisive break lower could consist in a long red daily candlestick, which pierces cleanly below the support levels identified and then closes near to the low of the day, or three red down days in a row that break below the support confluence, with the final day closing near its low and a decent distance below the lowest MA. 

There exists the potential for a recovery from the current level, given the underpinning support from the three MAs, however, so far there are no signs of a reversal. Such a sign might come in the form of a candlestick reversal pattern or bullish convergence with the Relative Strength Indicator (RSI) – yet given their absence, it is too early to call a bullish turnaround.